PARIS, Nov 10 (Reuters) - The European Commission has told
Britain and Malta to change rules relating to value added tax
(VAT) on yachts and private jets or face possible financial
sanctions, the EU commissioner for taxation said on Friday.

Pierre Moscovici said he had written three weeks ago to the
British finance minister about the Isle of Man and to the
Maltese minister about VAT on yachts and private jets.

"There are practices that we have reasons to think are
suspect," Moscovici told French television BFM TV.

"I asked that the rules be changed and if they aren't, the
European Commission will launch an infringement procedure that
can bear extremely heavy financial sanctions," he said.

EU officials said the Isle of Man, which is under British
sovereignty but self-governing, is suspected of exempting from
VAT buyers of jets even when there is no grounds to grant the
waiver.

If a jet is bought for business reasons, no VAT is applied,
but on the Isle of Man the Commission believes authorities do
not check sufficiently whether buyers effectively use the planes
for business or private reasons. In the latter case, VAT should
be paid.

In response, Britain's finance ministry said tax
administration on the Isle of Man was the responsibility of the
authorities there.

"We are working closely with them to look into how VAT is
paid on aircrafts and yachts, and we intend to reply to the EU
Commission by the end of the year," a spokesperson said in a
statement.

Malta is under scrutiny because of its rules on luxury
yachts that slash the VAT rate applied to bigger ships on the
grounds they are used mostly in international waters, an EU
official said.

It would likely take years, however, for fines to be imposed
under EU rules, which could happen only after two EU court
rulings against the offending countries.

The European Union is clamping down on tax avoidance, trying
to close loopholes that allow the wealthy to cut their tax bills
legally.

The release last week of the "Paradise Papers", a trove of
financial documents mostly from offshore law firm Appleby, has
refocused attention on the Isle of Man, a British crown
dependency, and Malta among other offshore banking centres.

The leaked papers have given new impetus on tax issues with
EU ministers aiming to approve a blacklist of tax havens next
month, although they are divided over how to impose sanctions.

The British government said on Monday it was seeking the
leaked papers to look into any allegations and has said holding
investments offshore is not an automatic sign of wrongdoing.

Maltese Prime Minister Joseph Muscat told parliament in the
capital Valletta on Wednesday that the VAT rules were approved
years ago by the European Union, and comply with regulations set
by the EU and the OECD club of wealthy nations.

An EU parliament report had refuted allegations that the
country is a tax haven, Muscat said, adding: "Malta is not a tax
haven and vigorously rejects the label of tax haven."
(Reporting by Leigh Thomas, Additional reporting by Myriam
Rivet, Francesco Guarascio, Andy Bruce and Chris Scicluna;
Editing by Matthew Mpoke Bigg and Stephen Addison)

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